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New elections increasingly likely as political stalemate drags on

Spain Politics August 2019

Spain: New elections increasingly likely as political stalemate drags on

August 26, 2019

Negotiations to form a government drag on nearly four months after the general election. Amid failed talks between the center-left Socialist Party (PSOE) and left-wing Podemos party to agree to a power-sharing arrangement, PSOE’s Pedro Sánchez lost his 22–25 July investiture vote to be confirmed as prime minister. The Socialists now have until 23 September to attempt once again to rally the support needed. Progress thus far has not been encouraging, however, with PSOE again rejecting on 20 August a reformulated proposal by Podemos to form a government. If PSOE’s bid to secure enough backing by the September deadline proves unsuccessful, repeat elections will be called for 10 November.

The economy has performed remarkably well thus far despite the political uncertainty that has plagued the country for the past four years. And although growth is losing momentum amid a maturing business cycle, it remains solid overall and well above the Eurozone average. Considering the slowing-growth environment, however, political and policy uncertainty ahead—especially if new elections are called—weigh more heavily on the outlook. Against this background, FocusEconomics Consensus Forecast panelists project that GDP will expand 2.3% in 2019, which is unchanged from last month’s forecast, and 1.8% in 2020. Meanwhile, the Central Bank expects the economy to grow 2.4% in 2019 and 1.9% in 2020.

Author:Javier Colato, Economist

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Reflecting weaker contractions of both the manufacturing and services sectors after they had collapsed in April, the IHS Markit composite Purchasing Managers’ Index (PMI) jumped to 29.2 in May from an unprecedented 9.2 in April.

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